Possible Deduction or Writeoff

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K3nm0r3_
K3nm0r3_ Member Level 2
edited January 15 in Credits/Deductions

Would all or a portion of a more than $40,000 municipal charge for water and sewer services brought to a residential new constructon deductible or a write-off on my tax return?

Answers

  • K3nm0r3_
    K3nm0r3_ Member Level 2
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    ? not sure what is required here

  • kiarab
    kiarab FreeTaxUSA Agent
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    Hello,

    According to the IRS,

    "You can’t deduct amounts you pay for local benefits that tend to increase the value of your property. Local benefits include the construction of streets, sidewalks, or water and sewer systems. You must add these amounts to the basis of your property." https://www.irs.gov/publications/p530

    It sounds like you would add the $40,000 cost to hook up the home to the cost basis. So say the home is worth $150,000. The adjusted cost basis with the hook up would then increase to $190,000. Then, when you sell the home, you can used that adjusted cost basis to determine the gain. If you were to sell it for $200,000 later, then your gain would be $10,000 instead of $50,000.

    There wouldn't be anything to claim this year, but there would be when/if you sell the home.